Are past crashes useful guides?

It's natural for those in desperate times to look to the past for comfort through comparison.

Many talk authoritatively of 1987, a few remember 1974, and nearly everyone talks of 1929 as if it were yesterday.
It's only a matter of time until someone says they've not seen anything like this since 1720, and the South Sea Bubble.
If we are in a re-run of 1987 we should be about to see an orderly recovery through an unpleasant recession. 1974's collapse marked the ratcheting up of inflation.
1929 though, was only the beginning of a bear market that went on for some three years before the Dow bottomed out, 90% below its peak.
During that time there were no less than seven rallies: the longest went on for over three months and saw a 48% recovery - enough to lull the most bullish investor into a smug sense of security, only to have it dashed by the succeeding falls.
Safe havens
For those looking anxiously to the US elections as some kind of watershed, you can draw a few crumbs of comfort from the fact that the 1720s market collapse in England heralded a backlash against materialism and almost 20 years of peace, prosperity and sober administration.

For all the attention on the Dow, the Nasdaq and the US economy, the most painful losses have been felt in emerging markets.
While the Dow fell only - I use the word in a strictly relative sense - 13%, Hong Kong, Bombay and Shanghai were down over 22%, the Brazil market fell 29%, and the RTS in Moscow 35%.
When crises hit, the panic-stricken investor looks to the dollar, and specifically US Treasuries.
Whether this will continue - bearing in mind the massive demands the government is going to be making on its creditors, starting on Wednesday when it announces its new quarterly borrowing requirement - is another matter, but for the moment there are precious few other safe havens.
Surging yen
October was the month that the crisis really hit Asia. In Japan the Nikkei was down 23%. Among the big cap stocks Mitsubishi UFJ, Mitsubishi Corp and Canon all fell around 20%, while Toyota fell 5%.
Much of the pessimism comes directly from the repeated blows that are being dealt to Japan's exports - a strengthening yen and a slow-down or recession in the US and now a deceleration in its other big export market, China.
Meanwhile its main competitor, South Korea, has seen its currency fall by a third over the last year against the greenback.
A word on the yen - October may well also be remembered as the month the Japanese carry-trade unwound. It is now back to levels last seen four years ago.

This trade has worked well enough, as investors - from hedge fund managers to Japanese housewives - borrowed cheap yen at near zero interest rates and then lent in high yielding currencies, most notably New Zealand dollars, and in happier times, Icelandic kroner.
Like the housing market everyone knew it would unwind some day. Well, it's unwinding now as the race begins to lower interest rates around the globe, and the money starts to be sucked back into Japan.
Towards the end of the month the yen had strengthened from 105 yen to the dollar to almost 92.
That's enough to wipe out any gain you might have enjoyed on a carry trade deal into the US.
But it's not so much the direction a currency is going, it's the volatility. The Kiwi dollar recorded seven out of its ten most volatile trading days ever in October.
On days like that you need your money at home safely under a large mattress.
The doubts over Asia have tainted many global stocks that might have escaped a downturn in Europe and the US.
The most notable is HSBC, which in September bounced dramatically while other banks sank - some without trace - but in October fell 16%.
The mining companies are in and out of favour as investors try to work out how bad the Chinese slow-down really is.
On the whole, though, the direction for firms like BHP Billiton, Xstrata and Anglo American is still down.
Defensive stocks
The banks generally are finding it near-impossible to rise out of the general slough that the credit crunch plunged them into.
They are caught in a horrible squeeze where the governments, their saviours and part-owners, tell them to lend generously to all and sundry to fight the good fight against recession, while every ounce of their commercial being screams "retrench" and "de-leverage".

The only areas of the equity markets that have enjoyed any stability are the traditional defensive stocks.
Wal-Mart ended the month flat, but up some 20% higher than a year ago.
Nestle, which gained about 1% on the month, said sales were up around 8% these last three months as did Unilever.
Proctor & Gamble profits rose 9% in this last quarter. Its shares may be down 4% on the month but people are still buying detergents and skin creams, and are not about to stop.
But before you rush to buy every drug, chocolate and drinks manufacturer between Seattle and Sydney, there is some thought that these stocks are already overvalued, and that they may be ripe for a fall, particularly if their earnings disappoint.
These stocks were never expected to deliver eye-watering profits, simply consistent ones, which is why they underperform in boom times and outperform in times like these.
JP Morgan downgraded Johnson & Johnson at the end of the month exactly for that reason - not because it foresaw problems, but because the price had been ridden up too high by investors looking for a safe port in this worst of storms.